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FIRE Formula:
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The FIRE (Financial Independence, Retire Early) number represents the amount of capital needed to achieve financial independence based on the 4% rule. It calculates the target portfolio value that would allow you to withdraw 4% annually to cover your living expenses.
The calculator uses the FIRE formula:
Where:
Explanation: This calculation determines the total investment portfolio value needed to support your desired lifestyle using the 4% withdrawal rule, adjusted for currency conversion if applicable.
Details: Calculating your FIRE number is essential for financial planning and retirement goals. It helps you understand how much capital you need to accumulate to achieve financial independence and potentially retire early.
Tips: Enter your annual expenses in GBP and the exchange rate if you need to convert to another currency. All values must be valid positive numbers.
Q1: What is the 4% rule?
A: The 4% rule suggests that you can withdraw 4% of your investment portfolio annually without running out of money over a 30-year retirement period.
Q2: Is the 4% rule still valid today?
A: While the 4% rule is a good starting point, many financial advisors recommend a more conservative approach (3-3.5%) given current market conditions and longer life expectancies.
Q3: Do I need to include exchange rate?
A: Only if you plan to retire in a country with a different currency than your current expenses. The exchange rate converts your GBP expenses to your target currency.
Q4: Should I include taxes in my annual expenses?
A: Yes, your annual expenses should include all living costs, including estimated taxes on your withdrawals and investment income.
Q5: What if my expenses change in retirement?
A: It's important to estimate your retirement expenses accurately. Consider healthcare costs, travel, hobbies, and other expenses that may differ from your current spending.